Comcast completes early acquisition of NBCUniversal

March 2013 | FEATURE | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

March 2013 Issue

The M&A market is showing signs of revitalisation in 2013. So far this year we have seen Dell Inc. accept a $24.4bn leveraged buyout, UK based cable giant Virgin media agree to be acquired by Liberty Media for $16bn, and Time Warner supposedly enter talks with publisher Meredith, with a view to potentially selling off its lucrative Time Inc., division.

Among these eye-catching deals of the year to date is General Electric Company’s (GE) announcement that it was selling its remaining 49 percent common equity stake in NBCUniversal to Comcast Corporation for $16.7bn. The deal, reported on 12 February, is expected to close by the end of Q1 2013. Comcast will finance the deal with $11.4bn of cash on hand, $4bn of subsidiary senior notes to be issued to GE, $2bn in borrowing and $725m issued in subsidiary preferred stock to GE.

For Comcast, the deal completes a journey it began in early 2011 when it acquired 51 percent of NBCUniversal for $13.8bn. The transaction, once completed, will be two years ahead of the 3.5 to 7 year time frame agreed in 2011. The price paid by Comcast, according to financial analysts and media observers, represents an excellent piece of business by the company. “Now that we have two years of operations under our belt, our optimism drove our decision to buy the other 49 percent ahead of schedule. We didn’t have to do this now, but we like the businesses and we got an attractive price,” said Brian Roberts, chairman and chief executive officer of Comcast.

The NBC network has recently undergone a ratings revival, besting its rival networks in the autumn schedule for the first time in nearly a decade. The network’s TV revenue rose 5 percent in 2012, even when excluding the Super Bowl and the Olympics. The Olympics, which were broadcast exclusively on the network, also generated better than expected advertising revenue.

The purchase of the network cements Comcast’s place as the biggest media company in the US by market capitalisation. “This is an exciting day for Comcast as we have agreed to accelerate the purchase of NBCUniversal. The management team at GE has been a wonderful partner during the past two years and their support has been very valuable. Our decision to acquire GE’s ownership is driven by our sense of optimism for the future prospects of NBCUniversal and our desire to capture future value that we hope to create for our shareholders,” said Mr Roberts.

As a result of the deal, Comcast has become one of the largest owners of cable channels, as well as the single biggest cable provider in the US. The transaction will see the Comcast family of stations absorb the NBC broadcast network, USA, Bravo, E!, CNBC, the NBC sports network and many other high profile stations. Comcast will also purchase the “iconic” NBC studios and offices at 30 Rockefeller Plaza, as well as the CNBC headquarters in New Jersey. The estimated cost of those real estate properties will be around $1.4bn.

Following completion Comcast plans on returning some capital to its investors. Accordingly the company has also announced a 20 percent increase to its dividend and the continuation of its $2bn stock buy-back program through 2013. Comcast is also investing heavily. The company plans to strengthen its broadband and television offerings, as well as improve and expand the Universal Studios theme parks and its burgeoning home securities division. Mr Roberts said “If actions speak louder than words, we’re bullish on the businesses we’re buying. We know these businesses. It’s three years since we signed a deal, and two years since we closed it and we have seen some early signs of turnaround and payoff for investments we’re making whether theme parks or cable networks or broadcast business or film business.”

An additional, increasingly important revenue stream and potential driver behind the purchase of NBCUniversal by Comcast may well be the volume of content the network has within its archives. Mr Roberts noted that “It’s been a very smooth couple of years, and the content continues to get more valuable with new revenue streams.” Although Comcast has 22 million cable subscribers, the need for content may well be the driving force for media companies going forward. The proliferation of on demand online streaming platforms such as Netflix is changing the entertainment and media landscape. As such, Comcast’s significant investment in NBCUniversal makes a great deal of sense. The company expects to see retransmission and programming fees that it can charge other pay-TV operators rise in “low double digit” percentages this year.

GE’s divestiture of its stake in NBCUniversal brings to an end an association between the two companies going back to 1926. Jeffrey Immelt, chief executive of GE, said that “By adding significant new capital to our balanced capital allocation plan, we can accelerate out share buyback plans while investing in our core businesses.”